Understand the importance of churn rate, its impact on subscriber lifecycle, and effective methods to track and reduce churn for your subscription business.
Overview of Churn Rate
Your churn rate is one of the key indicators of the health of your subscription business. Reducing your churn rate impacts your business outcomes more significantly than any other single factor, including your rate of subscriber acquisition.
Your churn rate is closely connected to your subscriber lifecycle. For example, a monthly retention rate of 80% implies a subscriber lifecycle of 5 months. Increasing that retention rate by 10% extends the average subscriber lifecycle to 10 months, effectively doubling the lifetime value of your subscribers.
Churn Measurement
Formula: (Customers churned in month / (Customers at start of month)) * 100
Customers who first churn and then restart during a single month do not contribute to your churn rate because they are still active at the end of the month.
Variations in Churn Rate Presentation
Churn Rate This Month
Your churn rate is presented in the Overview and Retain dashboard scorecards for this month. This is the exact same calculation as defined above, but it shows the rate of churn for the current month to date.
By contrast, trend charts displaying historical data will always show complete months. Your churn rate for the month to date will usually increase gradually over the course of the month as the number of churned subscribers accumulates.
Churn Rate for Paid Subscribers
Another important distinction is the churn rate for different subscriber views. This metric provides you with the option of looking at the churn rate for paying customers only.
This may be more useful than the churn rate for the overall subscriber base, especially since free subscribers do not contribute to revenue. The calculation for paid subscriber churn is exactly the same as defined above, but each element (churned, start of month, new in month) only considers paying subscribers.
You can also view the churn rate for free subscribers, but this is generally less meaningful. Free subscribers have a limited time for which they can remain unsubscribed, and they are not intended to be part of the subscriber base indefinitely.